Fox-Netflix Poaching Fight Questions Enforceability of Employment Contracts

Netflix company logo - Netflix headquarters in Los Gatos, CA - Getty- H 2017
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The executive poaching battle between Fox and Netflix could upend Hollywood's longstanding use of fixed-term employment contracts, and a California appeals court is now examining whether there's any way to enforce such an agreement without resorting to litigation. 

Fox in September 2016 sued Netflix, claiming the streamer is running a "brazen campaign" to poach its executives and induce them to break employment contracts. Netflix then countersued, arguing the agreements are unenforceable and amount to "involuntary servitude." 

Fox fired back with a motion to strike the counterclaims under California's anti-SLAPP statute, which aims to bring an early end to frivolous litigation arising from protected activity — essentially arguing that Netflix only sued because Fox sued first to enforce its contracts. Los Angeles Superior Court Judge Gerald Rosenberg denied the motion, finding the cross-complaint arises from the use of the agreements themselves and not the litigation. The statute includes an automatic right to appeal, which brings us to Tuesday's arguments before a 2nd District panel.

During an afternoon hearing, following what Associate Justice Sandy Kriegler described as the "heaviest calendar I've ever seen in 13 years," much of the conversation centered on what constitutes "enforcement" of an employment contract. 

Fox attorney Jonathan Hacker argued that when an employee wants to leave before the term of his or her contract is up, the employer's only options to enforce the agreement involve figuratively or literally wielding the contract; either you threaten litigation under its terms or you "roll it up and bat them over the head with it."

Associate Justice Lamar Baker asked why the employer can't just say, "You agreed to this. Be a good person."

Hacker said that doesn't qualify as enforcement, arguing the only way to enforce a contract is to go to court.

Netflix attorney Eric Shumsky argued that the only portion of the complaint that touches on protected conduct involves a cease and desist letter that was sent, which he claims isn't at "the root" of the litigation and could easily be excised. 

"There is a great deal of conduct alleged that has nothing to do with enforcement," he said, explaining the streamer contends several provisions in the contract are illegal and also noting that enforcement through "moral approbation" as Baker suggested is a viable option. "That is what the complaint is meant to allege."

Shumsky also argued that Fox selectively enforces its contracts, only "withholding consent" to leave from employees that wish to work for a competitor.  

During Hacker's rebuttal, he aggressively challenged Shumsky's assertion that Netflix is the "master" of its complaint and its interpretation should reign. If the court were to take every plaintiff's word on whether his or her complaint arises from protected activity, he argued, there would be no anti-SLAPPs granted.

"Read the complaint for what it really says, not what they meant to plead," he said. 

Hacker also argued that the labor code supports Fox in its efforts to stop employees under contract from leaving to work for a competitor. The company can't make someone show up to work if he or she doesn't want to, he asserted, but it can keep that person from taking a job somewhere like Netflix. Said Hacker, "Kobe Bryant can't just start playing for the Clippers."

The panel, which also included L.A. Superior Court Judge Dorothy Kim, took the matter under submission.